Robust Natural Gas Injections Provide Seasonal Buying Opportunity

Robust Natural Gas Injections Provide Seasonal Buying Opportunity

On October 13, EIA reported that inventories of gas in underground storage for the week ending October 7increased 112 Bcf to 3,521 Bcf. This injection of 112 Bcf was the largest on record for a week in October and the largest weekly injection since June 2009. This current injection is the third week in a row where injections have surpassed year ago levels.

As a result, the storage deficit to last year has narrowed and currently storage is 68 Bcf above the five year average. The robust pace of injections has been putting downward pressure on gas prices and has provided opportunities for customers to lock a lower cost of commodity in both gas and power.

The robust injections of gas into storage is a result of three supporting factors: robust production, mild weather, fall nuclear outages that are coming in line with forecast and matching ’09 &’10 levels.

-- Production: As of July, EIA reported Lower 48 Gross Production was 69.48 Bcf/day, a 38-year high. EIA cited both the Haynesville (LA) and Marcellus (PA) shale fields as key drivers of growth. The 69.48 Bcf/d includes approximately 6 Bcf/d of natural gas liquids (NGLs) such as propane which are indexed to the price of oil and have been a key component in expanded drilling levels in 2011.

-- Weather: For the week ending Oct. 6, temperatures averaged 67.7 F, which is .3 degree cooler than normal but still relatively flat from a heating or cooling perspective of 65 degrees as a baseline.

-- Fall Nuclear Outages: Current MW levels of nuclear units in outage are tracking closely to the past two years at approximately 20,000 MW. This is well below outage levels this spring where unplanned maintenance pushed outages approximately 15,000 MW above forecast and to record levels boosting gas fired generation demand.

The NYMEX 12 month Rolling Strip can be used a proxy for forward gas prices and shows the seasonality of natural gas over the past year. These seasonal buying opportunities occur in the spring and fall shoulder months when demand is at its lower points. The strip, currently trading near $3.96 MMBTU is off 21% from its summer high on June 8 of $5.058 MMBTU.